I’ve been looking into arranging Group Income Protection Insurance for my employees to provide wage insurance in case they’re absent following an accident or sickness. I was just wondering about the taxation of Sick Pay Insurance and how it works if someone unfortunately needs to claim.
- Nadeem Farid
- Head of Employee Benefits
When you buy Income Protection as an individual, it’s paid for out of income you’ve already paid tax and National Insurance on (i.e. your wages). That means should you need to make a claim on an Accident and Sickness policy, the benefit you receive is normally tax-free.
How is Business Income Protection taxed?
However, when an employer takes out company Income Protection Insurance for their employees, usually it is a business expense you can reclaim against corporation tax.
As a result, in most cases the benefit from Group Income Protection is subject to income tax when an employee has to claim.
Group Income Protection payouts are paid as a salary continuance to the employer, who then distributes this to the employee via the PAYE system. The benefit is then taxed in the normal way as if it were earned income from the employer.
Is Group Income Protection Insurance a benefit in kind?
No, in most cases Group Income Protection is not treated as a taxable P11d benefit in kind for the employee.